TfL faces tough decision on government funding offer

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Transport for London (TfL) has revealed some details of the government’s funding offer to keep London’s public transport running, and the current deal would last just 20 months, well short of the 3-year minimum TfL was seeking .

If TfL accepts the offer, it will be funded until April 2024, which marks the end of the 2023 financial year, so it is a very short-term deal.

TfL commissioner Andy Byford has argued for a three-year deal to secure medium-term maintenance budgets. Like any large, capital-intensive organization, maintenance is often planned years in advance because they know when things are going to wear out and require work to keep them in good shape. The difficulty is that you can’t plan maintenance work in 3 years’ time if you don’t reasonably expect the money to be available.

This uncertainty raises many concerns. Not only is long-term planning hampered, but if they have to upgrade to short-term maintenance packages, these are much more expensive.

So in a situation where there is less money, but the costs are also higher, then even less maintenance can be done. This is leading to a controlled decline in London’s public transport as services are gradually reduced to ensure services that can operate do so safely and reliably. TfL’s current projection is that it may have to cut its planned capital expenditure by around 20% if it does not sign the proposed financing agreement. This amounts to around £800million in undone repairs, at a time when there is already a backlog of repairs caused by the pandemic, so the real impact on the transport network is worse than the cuts suggest. announced.

The other concern raised is that the government appears to be trying to micromanage how TfL will spend the money, with the 20-month funding offer described as coming “extensive and complex terms”. In the years before the establishment of Transport for London and the office of the Mayor of London, London transport was subject to short-term funding regulations from the government, a lot of micromanagement and little medium-term planning opportunities.

The government appears to be of the view that TfL needs to become more tightly controlled again than it has been for the past 20 years. It may be, and if it is, KPMG’s report on the operation of TfL, commissioned by the Department for Transport (DfT), should be released so we can all see what the issues are.

The fact that the report was not published and that the DfT did not make much of TfL’s mismanagement suggests that KPMG’s report found a relatively well-run organisation. Otherwise, the report would be published and Secretary of State Grant Shapps, who commissioned it, would quote it all the time.

It is strange that the government, having presumably found an organization that can control its spending, still seeks to control how it spends its money.

If nothing else, it adds another layer of approvals and bureaucracy to the process.

Considering that in recent years a number of rail franchises have been extended for 6 years, the DfT is clearly not averse to long term agreements.

But not for London.

On a positive note, TfL reiterated that it was on its way back to financial sustainability by April 2023, so there should be no need for government funding for day-to-day running costs. These running costs are usually subsidized to some degree by central governments in other countries, but not in the UK. Therefore, breaking even next year is a pretty impressive result, regardless of other issues plaguing TfL.

The difficulty is that balancing running costs leaves little room for maintenance and investment, and TfL has warned that without a commitment to support this, public transport in London will go into “managed decline”, where they will gradually reduce the services as equipment. wears out and cannot be repaired.

Since the pandemic shattered TfL’s revenue, they have received around £5billion in funding to keep public transport running, which has been fully used to cover collapsing fare revenue. However, this did not fully cover the losses, and TfL also lost around £1 billion from its own cash reserves.

By comparison, DfT spending on keeping public transport running during the pandemic had topped £21billion at the end of last financial year. TfL was not alone in needing help to keep trains and buses running when most people had to stay at home.

The government’s most recent funding deal expired on August 3, so TfL has been operating on its own reserves, although it still needs income support for the next 9 months.

This has put TfL in a position where it can either agree to the complicated, short-term deal that is on the table or trigger the nuclear option i.e. issue a Section 114 advisory. , which would force TfL to shut down any loss-making service. and run a profitability service. This would probably mainly come down to bus networks, which were traditionally subsidized by train fares and operated at a loss.

For the time being, they have avoided having to issue the advice because TfL and the DfT have been in negotiations in the hope that a deal will be reached. If negotiations fail, TfL’s interim chief financial officer Patrick Doig would be legally bound to issue the notice and make massive cuts to services almost overnight.

The TfL board will meet on Tuesday morning to make their decision.

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